Today's report from the American labor market seems to confirm the thesis that without an additional fiscal program, it will be difficult for the American economy to get off its knees. However, the implementation of the rescue plan may be complicated by the fear of political chaos related to the coronavirus infection of the US President.
Today at 2:30 p.m., the U.S. Department of Labor published that in September 2020, only 661 thousand new jobs were created in the US economy. This is a sharp drop from almost 1.5 million jobs created in August and below the market consensus of 850 thousand. Thus, employment in September was 10.7 million lower than in February. This, in turn, only shows that it may take more than a year for the U.S. economy to recover from the epidemic, and it still seems an optimistic scenario.
According to the BLS data, most jobs were created in leisure and hospitality, retail trade or health care. Meanwhile, the government administration recorded a decline in employment due to the closure of jobs in education offered by the state and local governments. Thus, it seems that the recovery of the U.S. labor market is slower than originally expected, which may increase the markets' appetite for the next aid package and extend the very loose monetary policy pursued by the Fed over time.
After the publication, the head of the Philadelphia branch of the Fed spoke out, saying that after long periods of inflation below 2%, we will accept periods of inflation above 2%. Tolerating the risk of slightly higher inflation is, in our opinion, worth it if it helps us achieve our employment targets. We will no longer prevent higher inflation by raising interest rates before we reach full employment – Patrick Harker added.
Data from the American labor market did not improve the mood on Wall Street. Half an hour before the opening of the session, contracts on Dow Jones fell by more than 500 points, or 1.8%, S&P 500 by 1.8% and Nasdaq by more than 2.2%. That's about the same as the loss of indices throughout the week. The market that has been losing the most in recent days, in turn, is oil, which is cheap by almost 5 percent. The US dollar seems to end the week on a slight plus of 0.2 percent. Meanwhile, the biggest winner of the week is the VIX fear index, which rose by over 6 percent.
Next week, information on the health of the US President should be crucial. According to the New York Times, Donald Trump is having a mild illness and his symptoms resemble a common cold. It seems that the whole political and financial world is now looking at the White House and the messages coming from it.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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